In the matter of Ethos Solutions Limited: Christopher Purkiss v Tim Kennedy & Ors.

Permission to add a new party and alternative claims after expiry of limitation periods is discretionary. A proposed amendment introducing a new cause of action must have a real, more-than-merely-arguable prospect of success, be coherent and properly particularised, and be supported by evidence establishing its factual basis.

A claim in unjust enrichment requires enrichment, enrichment at the claimant’s expense, and an established unjust factor. The court cannot simply treat gross remuneration payments as enrichment where recipients bear parallel tax liabilities. An unjust enrichment claim cannot ordinarily override a contractual allocation of risk. Liability to make a payment under compulsion of law is insufficient without payment. Hypothetical declaratory relief should not be introduced where it is premature, unnecessary and lacks practical utility.

The liquidator of Ethos Solutions Limited sought permission to re-amend an existing Insolvency Act 1986 section 423 claim. The proposed amendments would add the company as a second applicant and introduce alternative claims in unjust enrichment based on mistake of law and compulsion of law.

The respondents opposed the application on grounds including abuse of process, lack of real prospects of success, limitation and discretion. The court had to decide whether the proposed claims were legally and evidentially arguable, whether the statutory and procedural requirements for joinder and amendment were satisfied, and whether the proposed declaratory relief served any useful purpose.

1. Outcome. The remainder of the re-amendment application was dismissed. The previous joinder of the replacement liquidator was unaffected. Costs were reserved for submissions on hand-down.
2. Merits threshold. Applying SPI North and Kawasaki Kisen Kaisha, an opposed amendment introducing a new cause of action must have a real prospect of success. It must carry some degree of conviction, be coherent and properly particularised, and be supported by evidence establishing a factual basis. Mere speculation or bare assertion is insufficient.
3. Unjust enrichment. The proposed pleading failed to establish enrichment or enrichment at the company’s expense. The recipients’ parallel and contingent tax liabilities had to be considered. The company’s payment of gross sums through the trust did not itself establish enrichment equal to the PAYE and NIC element. Nor did the gross payment cause the company’s tax liability, which arose independently.
4. Mistake. The proposed mistake claim passed the threshold only as to the existence of a possible mistake of law. It failed on causation because there was no properly evidenced case that the company would have stopped making payments or made net payments had it known the law. It also failed because the respondents had contractual rights to the gross payments and the claim conflicted with the parties’ contractual allocation of tax risk.
5. Compulsion of law. The principle requires the claimant to have paid, or at least to have been compelled or compellable to pay, money which discharged the defendant’s liability. The company had not paid HMRC. The proposed claim based on the company entering liquidation was novel, unsupported by established authority, and in substance compensatory rather than restitutionary.
6. Declarations and procedure. The proposed declaration that respondents would become liable if the company later paid HMRC was hypothetical and premature. The underlying principle was already settled, and the proposed declaration would have no useful practical purpose. The new claims were also reasonably arguable as statute-barred, did not arise from the same or substantially the same facts, and would cause disproportionate delay, expense and procedural complication.